When preparing an estate plan, there are a variety of reasons to consider using a trust (or multiple trusts) to distribute your assets after your death. Trusts offer certainty that your final wishes will be carried out as you intend, they offer the flexibility to modify your estate plan as circumstances change over time, and they offer the ability to manage your assets during your lifetime for the benefit of future generations.
All of these benefits can be enhanced with the use of a trust protector. A trust protector is someone who is appointed to protect the best interests of the trust as time goes on. You can appoint a trust protector when you establish your trust, and you can grant your trust protector the specific powers you desire while also imposing appropriate limits on his or her authority.
If I Have a Trustee, Why Do I Need a Trust Protector?
Although the role of a trust protector and a trustee may initially appear similar, there are a number of reasons why a grantor (the person who establishes a trust) may wish to appoint both a trustee and a trust protector. The trustee’s role is to manage the trust’s assets on an ongoing basis, and to distribute the trust’s assets according to the grantor’s wishes as set forth in the trust’s documentation. In contrast, a trust protector serves to oversee the best interests of the trust on a broader scale.
While a trustee will invest trust assets and distribute proceeds to beneficiaries, a trust protector can decide whether a particular investment strategy is prudent, whether a change of direction is needed in light of a change in circumstances or an amendment to state trust laws or federal tax laws, and whether any modifications to the trust’s distribution structure are necessary to better serve the grantor’s final wishes.
What Are the Benefits of Having a Trust Protector?
Appointing a trust protector will not be necessary for everyone. However, under the right circumstances, appointing a trust protector can have a number of important benefits. Some of these benefits include:
1. Providing Oversight of Your Trustee
As discussed above, one option you have when appointing a trust protector is to give the trust protector oversight of your trustee. This can include the power to:
- Approve or veto investment decisions
- Approve or veto discretionary distributions
- Resolve disputes between your trustee and your beneficiaries
- Appoint additional trustees
- Remove or replace a trustee
While this may seem unnecessary if you are able to choose a trustee who you trust implicitly to faithfully fulfill his or her responsibilities, many people are less confident in their choice of trustee. Whether you choose a family member who does not have significant asset management experience or a professional trust manager who you do not know personally, appointing a trust protector can both relieve your trustee from a certain amount of responsibility (if you want to mitigate a family member’s risk of liability) and help ensure that your trustee does not improperly manage or waste trust assets.
2. Adapting to Changes without Amending Your Trust Documents
With the broad powers available to trust protectors, by appointing a trust protector, you can achieve the ability to indirectly modify the terms of your trust without needing to formally amend your trust documents. Certain decisions by trust protectors will require formal modifications. However, (i) many will not, and (ii) when amendments are necessary, your trust protector can execute these amendments for the benefit of the trust.
3. Modifying Your Trust After Your Death
Another benefit of appointing a trust protector is that your trust protector can essentially serve in your absence after your death. While you will no longer be able to modify your trust, your trust protector can take on this responsibility on your behalf. If your trust protector has clear direction and a clear understanding of your estate planning goals (as reflected in your trust documents), he or she can continue to make important decisions so that your trust does not become outdated.
4. Addressing Issues You May Have Overlooked
While one of the goals of estate planning is to be as thorough as possible, there is always the possibility that some considerations will go overlooked. What if one of your beneficiaries dies or becomes excommunicated before or after your death? What if one of your beneficiaries has a child (or another child)? What if circumstances change so drastically and unexpectedly that your trust no longer adequately serves your estate planning goals? These are all examples of issues that can create uncertainty and unfavorable results for your loved ones, and that your trust protector can address proactively.
5. Maintaining Legal Protection and Tax Benefits
Changes in state trust laws and federal estate and gift tax laws can drastically impact the benefits of using a trust in your estate plan. If a change in the law directly impacts your trust, or if a change in the law opens up new possibilities for tax-advantageous estate planning, you can endow your trust protector with the power to modify your trust in order to address the new legal landscape.
Can I Appoint a Trust Protector if I Already Have a Trust?
If you have already formed your trust, is it too late to appoint a trust protector? In most cases, no. If you have a revocable trust, you can generally amend your trust to include appropriate provisions for the appointment of a trust protector. If you are interested in appointing a trust protector for an irrevocable trust, you may be able to do so through the legal process known as judicial reformation.
Can a Trust Protector Modify an Irrevocable Trust?
In many cases, yes. A trust protector can typically modify an irrevocable trust through two primary means: (i) amendment and restatement, or (ii) judicial reformation.
With an amendment and restatement, the trust protector modifies the terms of the trust directly. In the case of a judicial reformation, the trust protector asks a court to set aside or clarify ambiguous trust terms. Additionally, your trust protector may be able to modify your irrevocable trust to include decanting provisions, which allow for complete divestiture of the trust’s assets into a newly-established trust. This is a practical solution when use of a previously-established irrevocable trust is no longer desired.
Trust protector laws vary from state to state, though several states have adopted versions of the Uniform Trust Code which include standardized provisions regarding trust protectors’ powers and responsibilities. As with all estate planning considerations, deciding whether to appoint a trust protector for your trust requires careful consideration of the relevant legal principles in light of your unique personal, financial, and family circumstances.
Speak with Estate Planning Attorney Jiah Kim
Jiah Kim is an international estate planning attorney who has extensive experience preparing trust documents and dealing with estate administration issues involving trust protectors. If you need help deciding whether to incorporate a trust protector into your estate plan, you can contact Jiah Kim & Associates for a confidential initial consultation. To request an appointment, please call (646) 389-5065, or send us a message online and we will be in touch as soon as possible.
This blog post is written for educational and general information purposes only, and does not constitute specific legal advice. You understand that there is no attorney-client relationship between you and the blog publisher. This blog should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.